Missing Link Friday – 25 Feb 2011

In this week’s Missing Link Friday: Why Ross Gittins doesn’t want to hear you complaining about the high cost of living. Is there a connection between free trade and disability? Just how deluded are Americans about inequality? Who’s to blame for American ignorance about climate change? And the truth about exaggerated reports about the death of blogging.

My theory is that if people are reduced to whingeing about the cost of living, it’s a sign they don’t have any more pressing problems to complain about. The cost of living is always rising, so there’s always something to complain about if you’re that way inclined.

Prices might rise but so do incomes. And even if some prices rise faster than incomes, we might still be better off. In the US, Matt Yglesias shrugs off the rising cost of health care writing: "discussion of health care costs sometimes ignore the fact that something has to go up as a share of GDP." He posts two graphs to make his point.

There are costs to trade liberalisation, writes R.A. at Free Exchange, and they often fall on a small number of people who lose their jobs or see their wages fall. R.A. links to a recent paper by US economists David Autor, David Dorn, and Gordon Hanson. They argue that:

Growing import exposure spurs a substantial increase in transfer payments to individuals and households in the form of unemployment insurance benefits, disability benefits, income support payments, and in-kind medical benefits.

Disability programs Social Security Disability Insurance (SSDI) are not just insuring workers against illness or injury, they are helping to soften the impact of labour market adjustment. According to R.A.

When a worker goes on SSDI, he or she is almost certain to be lost forever to the workforce. And SSDI plays a strikingly large role in cushioning workers from the impacts of trade. This is terribly wasteful. A better designed programme would help more displaced workers find jobs. That would lead to less of a loss in the country’s economic productive capacity, and it would also reduce the loss from the need to tax working people to pay benefits to jobless workers in perpetuity. In other words, the reason trade with China looks like a wash is because America’s labour market policies are absolutely dismal.

At Boing Boing, Cory Doctorow writes: "The myth of the American dream has led plenty of ordinary Americans to believe that they are rich-people-in-waiting, leading them to support policies that benefit the rich at their expense".

"You haven’t persuaded the public," replied Elizabeth Shogren of National Public Radio. Emanuel immediately countered, smiling and pointing at Shogren, "No, you haven’t." Scattered applause followed in the audience of mostly scientists, with one heckler saying, "That’s right. Kerry said it."

At EconLog Bryan Caplan observes that libertarians: "have far more beliefs in common than their core position requires. For starters, even non-consequentialist libertarians generally believe that libertarian policies have good consequences." Climate change denial is one example, writes commenter Scott Sumner.

Facebook and Twitter are far better for the dynamism and the quicker, easier interchange of views that suits me, at least at this point in time. Blogs still have their place (which includes being linked to on Facebook and Twitter), but the public feedback and interchange that most appealed to me with blogs often now works better elsewhere.

At BlogHer, Elisa Camahort Page writes that "Blogs are where meaty conversations happen". Teenagers are most often using social networking sites to keep in touch with friends and family and Facebook serves that function better than blogs. Camahort Page points out that young people’s behaviour may change as they age.

At Wordyard Scott Rosenberg notes that blogging is still growing even though 12 to 17 year olds are doing less of it. According to the Pew Internet study behind Kopytoff’s story, blogging declined in popularity among teens and to a lesser extent 18 to 33 year olds but increased among most older generations: "as a result the rate of blogging for all online adults rose slightly overall from 11% in late 2008 to 14% in 2010." Rosenberg writes:

More of us are using Facebook and Twitter for casual sharing and personal updates. That has helped clarify the place of blogging as the medium for personal writing of a more substantial nature. Keeping a blog is more work than posting to Facebook and Twitter. So I wouldn’t be surprised if, long-term, the percentage of the population blogging plateaus or even declines.

Matt Mullenweg thinks younger Twitter and Facebook users may eventually start to blog as well: "at some point you’ll have more to say than fits in 140 characters, is too important to put in Facebook’s generic chrome, or you’ve matured to the point you want more flexibility and control around your words and ideas."

7 Responses to Missing Link Friday – 25 Feb 2011

I think that incarceration (and hence drugs) and finding new jobs for the losers from trade are possibly the two biggest policy challenges of our time.

Maybe early-childhood education is up there.

But I think dealing properly with these issues requires rethinking government assistance in favour of spending more money per transfer but more usefully (like relocation subsidies, or short but actually worthwhile training courses), hopefully in the aim of spending less or about the same overall.

If you look at the 2005-06 ABS Income Survey you find that in Australia the richest 20% have 61% of all net worth (assets minus debts), whereas eyeballing the US chart the richest 20% have more than 80% of the wealth – but the ABS figures are adjusted for household size and I don’t know if the US figures are.

However, it could be argued that what is more relevant is the joint distribution of income and wealth – people over 65 have lower incomes than younger people, but tend to have higher net worth, due to accumulation over the life cycle.

When you rank wealth by income, in Australia you find that the richest 20% of income earners have 38% of the net worth, and the net worth of the 20% with the lowest incomes is equal to 12% of total net worth.

Most of this is related to the fact that average wealth increases with age, but there is also a problem that not all the people with low measured incomes are “really” poor – as the ABS now says that if you want to look at the people with the lowest incomes you should look at the people in the second and third income decile and not include the people the lowest decile.

Whether the same applies in the US I don’t know, although the age profile of wealth is very likely to be similar. Having said this, there is other evidence that the distribution of capital is much more unequal in the USA than in Australia. The OECD 2008 study of income inequality found that the Gini coefficient for income from capital for people of working age was 0.34 in Australia (and the UK) but around 0.66 in the USA (and Sweden).

My only comment on this lot is that the Matt Yglesias post is not very illuminationg. It doesn’t even do the accounting, let alone posit an explanation. Health care will increase as a share of consumption if (1) incomes are growing and (2) the demand is income elatstic, and/or (3) the relative price is rising and (4) the demand is price inelastic. (1) is true for most, but not all, segemnents of American society for obvious reasons; however (2)-(4), though they may be true, all need investigating.

James – Your comment reminds me of a pair of posts from 2003. In the first Chris Bertram invokes the Baumol effect to explain the appearance of vacuum-packed cassoulet in restaurants in France while John Quiggin looks at how poor Americans can afford cable TV but not health care.